Community Foundation Fund vs. Private Foundation
Among the types of funds offered by the Foundation, a Donor-Advised Fund is one of the most popular because it affords all of the advantages of a private foundation without the tremendous administrative, organizational and financial duties.
To create a private foundation, you must start the organization, hire staff, establish a board and obtain tax-exempt status through the IRS. Following its creation, a private foundation is required to file IRS Form 990-PF annually and will incur administration fees.
Establishing an endowment fund can take as little as one hour and is much easier and less time consuming to manage than a private foundation.
| Items to Consider | Private Foundation | Community Foundation Donor-advised Fund |
| Setup procedure | Setup fees | No setup fees |
| Ongoing costs | Liability insurance, direct administrative costs | Pooled administration, low costs |
| Tax benefits - Cash - Appreciated stock - Closely held stock |
Up to 30% of adjusted gross income Up to 20% of adjusted gross income Deduction limited to basis |
Up to 50% of adjusted gross income Up to 30% of adjusted gross income Deduction at fair market value |
| Excise taxes | Usually 2% of investment income annually | None |
| Investment, accounting, audit and tax returns | Trustees must perform, contract, or hire staff for these services | Community Foundation handles all investments and accounting, files annual tax return and provides annual independent audit |
| Grantmaking | Trustees and Staff must research and identify agencies/ programs to fund | Community Foundation program staff educates donors regarding agencies and programs; provides information on qualified giving opportunities |
| Grant management | Must ensure all recipients are qualified 501 (c) 3 organizations | Community Foundation verifies organization’s status. Additionally, donors can access the Foundation’s strategic grantmaking services |
| Distribution requirements |
5% annual distribution required, whether or not the Foundation’s investment earns that amount. Self-dealing restrictions |
None. Donors can make grant recommendations at their discretion |
| Privacy | Tax return is public record | Donor may choose to remain anonymous |
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